desco capital buys 4 companies in 1st year with pot of available cash-BUSINESS FIRST
Friday, May 13, 2011
Business First of Columbus - by Adrian Burns
The investment arm of a Columbus manufacturing conglomerate has made good on a mandate to shop for acquisitions in its first year.
Desco Capital, an affiliate of Columbus-based Desco Corp., began a year ago with more than $50 million to buy companies that could add to Desco’s portfolio while providing long-term returns. It closed four deals in its first year, most recently the April acquisition of a 260-employee oil and gas construction business in Colorado.
Desco Capital has used its ability to buy quickly – and with cash – to seal deals in a marketplace where bank funding can be hard to come by for rival suitors, said Managing Director Andrew Bohutinsky.
“What we try to emphasize is our speed and flexibility,” he said.
For example, Desco wasn’t the highest bidder for the Colorado business but it had money in hand, Bohutinsky said.
“We wrote a check. We didn’t have to go to the bank,” he said, “and the other bidder did.”
Desco added two of the newest companies to its portfolio, and merged the other two into its Marsh Bellofram Corp. Together, they helped Desco’s payroll top the 1,000-employee mark, Bohutinksy said.
Terms of the buyouts were not disclosed.
Hot or Not
Desco Capital is looking far and wide for businesses – healthy or distressed – in a variety of industries. Particularly attractive are manufacturers with proprietary products, Bohutinsky said.
Desco has manufacturing and engineering facilities in China, so it also looks for manufacturers that could profit from cost savings associated with moving production there, he said. In March, it bought Akron-based Mueller Electric Company Inc., a maker of proprietary electric clips and connectors, Bohutinsky said, whose founder invented the alligator clip. The 25-worker company was in bankruptcy so the ability to close the deal quickly was critical, he said.
Distressed sellers have been scarce. Some prospects failed before Desco Capital was launched last year, and others are waiting for a recovery, Bohutinsky said.
In the case of the oil and gas business that Desco bought from Lakewood, Colo.-based Hettinger LLC, the company was strapped by debt and couldn’t grow. Its managers couldn’t pursue opportunities because money wasn’t available, Bohutinsky said. The business was renamed Blackeagle Energy Services when it joined Desco.
Desco has seen an increase in buying opportunities for healthy companies because economic improvement has begun to give owners the results they need to push for higher prices. To find companies that make sense for its portfolio, Desco has expanded its search nationally, though it continues to explore Ohio, Bohutinsky said.
Another strategy of Desco’s approach is a focus on running companies for the long term. Since Desco has several manufacturers in its portfolio, it has expertise to make companies run better, rather than flipping them for a profit in a few years.
“That’s one way we distinguish ourselves. We’re not like private equity funds that say, ‘We’re going to hold a company for five years,’ ” Bohutinsky said. “There’s not a gun to our head saying we have to sell at any time.”
Buyers with expertise in certain industries can prosper because they can pick deals that help to diversify or complement other holdings, said Scott Chapman, a partner with Copper Run Capital LLC, an investment bank in Columbus that matches buyers with sellers.
“Those are great buyers because they understand the space so well,” he said.
Such buyers frequently have businesses that have generated cash that was hoarded, he said.
But buyers must first, of course, find sellers. With the economy crawling back, many sellers are getting
out of a business for reasons such as age, not because the time is right to grab the best price, Chapman said. He said a market with reasonable prices is usually around five times earnings before income taxes, depreciation and amortization.
“They’re going to get a fair price. People aren’t getting crazy multiples,” he said. “To me, pricing is very rational and right where it should be.”
- Business: Holding company for eight manufacturing and industrial technology businesses. Its Desco Capital affiliate was launched in April 2010 with more than $50 million to acquire companies with up to $12 million in annual earnings.
- Based: Columbus
- Owner: Al Siemer
- Employees: More than 1,000
- Area employees: 20
- 2010 revenue: $175 million
- Companies owned: Marsh Bellofram, MDT Software, Medical Indicators, Republic Door and Frames, Tek-Air Systems, Windsor Door, Mueller Electric, Blackeagle Energy Services
- Website: descocorporation.com
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